This article first appeared in The Edge Financial Daily on July 23, 2018

KUALA LUMPUR: The local capital market can expect a healthy pipeline of initial public offerings (IPOs) next year as submissions from sizeable Malaysia-based firms are starting to come in, according to investment bankers.

“There are a number of IPOs in the pipeline looking to raise well over RM1 billion each,” said Maybank Investment Bank Bhd regional head, equity capital markets, Ramesh Manimekalanandan.

“After a hiatus in IPOs in the first half of 2018 (1H18) as issuers waited for the completion of the 14th general election (GE14), the pipeline for the rest of 2018 and 2019 is very healthy on the back of pent-up issuance, including previously delayed IPOs,” he told The Edge Financial Daily in an email query.

This is good news for Malaysia which, like its regional peers such as Singapore and Thailand, mostly saw small-cap listings in the first half of 2018.

The trend of small-cap companies dominating local listings is expected to extend to year end, said Ernst and Young (EY) in its “Global IPO trends: Q2 2018” report.

This came as geopolitical uncertainty, trade tensions and macroeconomic conditions continue to dampen IPO activity in the year, it said.

“The 1H18 performance does not reflect the IPO activity in Malaysia,” responded a banker, pointing to the historic GE14 which occurred in May.

“Companies coming to the market after May could miss this year’s November window to list,” the banker said. A complete listing process has a lead time of between six and nine months, he added.

“The real question for me is whether they will list before November. We are working on multiple IPOs right now, and it is not just us. There is a healthy pipeline of issuers,” he said.

Leading the IPO train is the insurance industry — it was circulated in the media that foreign insurance companies have been told to trim their stakes in their Malaysian units to 70% soon.

Potential names include Tokio Marine Holdings Inc and Prudential plc. The latter is reportedly seeking a share sale to raise US$700 million (RM2.84 billion), according to Bloomberg.

Also rumoured to list is Malayan Banking Bhd’s insurance and takaful arm Etiqa. Other big deals eyed by investment bankers include the possible relisting of Asean poultry player Leong Hup International Sdn Bhd and fast-food chain operator QSR Holdings Bhd.

“Some of the insurance companies have gone into submission. These will be big IPOs so there is a lot of interest,” another executive with an investment bank told The Edge Financial Daily.

“We ourselves are going through due diligence process for certain prospective companies … we are looking at submission at the end of the year,” she said.

Minus the LEAP Market, Malaysia saw six IPOs in 1H18, including the sole listing so far this year on the Main Market — Mi Equipment Holdings Bhd. The six companies collectively raised RM358.36 million.

Another upcoming listing on the ACE Market is retail technology solutions provider Radiant Globaltech Bhd tomorrow, which raised RM29.5 million from its IPO at 23 sen per share.

Meanwhile, Thailand and Singapore saw six and seven listings, respectively, during this period, raising about US$400 million each, according to EY.

Note that Malaysia has outperformed Singapore in IPO volumes in recent years, excluding real estate investment trusts and business trusts.

Bloomberg data show that between 2014 and 2017 Malaysian IPO proceeds — excluding the two aforementioned categories — have beaten Singapore by a healthy margin. Malaysian IPOs raised US$1.655 billion in 2017 compared with US$402 million from Singapore.

Despite the lower IPO values for Malaysia year to date (YTD) at US$48 million, Singapore’s YTD volume of US$99 million is low by historical comparisons. Notably, Singapore also did not experience a major macro event such as GE14 in Malaysia.

Meanwhile, the LEAP Market has garnered a bit of interest since its first company Cloudaron Group Bhd was listed on Oct 3 last year.

The third board now has eight listed companies in the course of less than 12 months of its introduction, raising a collective RM35.23 million.

The investment community agreed that with the LEAP Market and other measures by Bursa Malaysia to excite the market, there ought to be a steady stream of small-cap IPOs moving forward.

However, of the seven companies which listed on the Main Market and ACE Market up to July 20, 2018, only three firms are seeing their share price currently trading above their IPO price.

The change in government partly contributed to the ongoing stock market correction. But this will not cut appetite for big IPOs moving forward, said the banker. “Temporary market correction is normal. IPO depends on whether there is fundamental change,” he said, citing examples such as the ongoing global trade tension.

“That will also weigh differently as different companies have different exposure to these sorts of elements,” he added.

But for Areca Capital Sdn Bhd chief executive officer Danny Wong, the local market will still remain attractive to companies eyeing a more defensive market.

“Our market seems to be more defensive — investors are more attracted to companies with dividend payment. So genuine businesses can choose Malaysia to list if they are seeking a less volatile market,” he said.